Antecedents of Financial Stability of Banks

Abstract

This study examines the factors that affect the financial stability of banks in Pakistan. Based on CAMELS’ framework of checking financial stability of banks, this study seeks to highlight the bank specific factors that influence the financial stability of banks. By using Z Score for measuring financial stability of banks, this study examined the impact of bank specific factors on the financial stability of banks. Based on data from 2007 to 2021 of 21 commercial banks of Pakistan, this study used GMM technique for estimation. The results indicate that capital adequacy, asset quality, earnings and liquidity significantly affect the financial stability of banks. The policy implications of this study called for establishing vigilant mechanism for monitoring the financial stability of banks.